Definition of Portfolio and ways to manage it
By Team Shepays
2 days ago
What Is Portfolio Management?
An investment portfolio is referred to a collection of various investment instruments such as stocks, mutual funds, fixed deposits, bonds, cash or other assets. As an investor, you can choose different investment instruments to add to your investment portfolio based on certain factors such as investment objectives, investment horizon, investible surplus, risk tolerance etc.
Portfolio management is the process of selecting the right financial instrument with the objective of maximizing returns while minimizing risk.
What Is The Need For Portfolio Management?
Portfolio management can help an investor to determine the most appropriate and suitable investment plan based on their income, capital, financial objectives, age and risk tolerance. With the help of the right portfolio management services, an investor will be able to build wealth over a period of time.
Who Should Opt For Portfolio Management?
Portfolio management helps in maximizing returns on investment while reducing the risk. Here is some example of investors who should opt for portfolio management:
A beginner investor who has little knowledge about different investment avenues
Investors looking for varied investment opportunities like equities, debts, derivatives, etc.
Investors who do not know how the market can influence the returns on investment.
Investors who do not have much time to track their investments.
Objectives Of Portfolio Management
Below mentioned are some objectives of portfolio management:
Capital appreciation
Maximizing returns on investments
Protecting your wealth from market inconstancy
Improving overall proficiency of investments
Optimally allocating resources
Ensuring portfolio’s flexibility
Risk Optimisation
Different Types Of Portfolio Management
Portfolio management can be classified into 4 different categories, namely:
Active Portfolio Management: Under this type of portfolio management, the primary objective of the management is to generate maximum returns on the investment. As a result, the portfolio manager puts a significant share of resources into trading securities. Typically, stocks are purchased when the value of the stocks is low and sold when the value increases.
Passive Portfolio Management: This type of portfolio management is concerned with a fixed portfolio that is perfectly synchronized with current market trends to generate returns. The portfolio manager is likely to invest in index funds that provide low and steady returns but may seem profitable in the long run.
Discretionary Portfolio Management: Under this portfolio management strategy, the manager is delegated with authority to make investment decisions on behalf of investors based on the financial objectives and risk appetite of the investor. The portfolio manager chooses an investment strategy that is suitable according to the investor’s financial objectives and risk appetite.
Non-Discretionary Portfolio Management: Under this portfolio management, the portfolio manager provides advice to the investor about the investment choice. It is up to the investor to accept or deny the advice.
Different Ways of Portfolio Management
Portfolio managers may adopt different strategies to ensure a sound investment portfolio so that the investors can boost their wealth and lower their risks significantly:
Asset Allocation: Under this style of investment, the money is divided between safe and risky assets in a manner that the investor can earn somewhat stable returns. The allocation must match the investor’s risk profile and investment style.
Diversification: The investors’ portfolio is well-balanced and diversified across different investment instruments with an objective to achieve the ideal balance between risk and returns.
Rebalancing: Rebalancing is essential for improving the profit generation of an investment portfolio. This helps the investors to rebalance their portfolios and earn good returns as per their risk tolerance. It is advised to rebalance the investment portfolio on a regular basis.
Process Of Portfolio Management
Once the investor has chosen a suitable strategy, they must follow a process to implement the same. Below mentioned is the process of portfolio management that an investor can follow:
Identification of objectives
Estimating capital market
Asset allocation
Formulating suitable portfolio strategies
Investing in profitable investment avenues
Evaluating and revising the portfolio
Rebalancing the components of the portfolio
Portfolio Management - Tools And Methods
Scoring techniques are used to help in increasing the return on investments and also help make strategic decisions to manage the investment portfolio. Below mentioned are some common scoring techniques:
Simple Additive Weighting Method
Weight Product Method
Take Away
If you are facing any challenge with managing your portfolio, you can reach out to our experts at ShePays, who will assist you make informed investment decisions. We are striving to empower all females in India to realize their financial goals by providing a digital-first neo-bank meant exclusively for women.
Can portfolio management be done without professional help?
Yes, portfolio management can be done independently without any professional help. In case you are a new investor and have little knowledge about different investment avenues and market trends, then you should consider portfolio management with professional help, i.e. the portfolio manager, who can help you and provide you with effective solutions.
Who is the portfolio manager?
A portfolio manager is a person who is responsible for creating and managing investment allocation for different individuals. The portfolio manager is a very skilled person who has great knowledge about different profitable investment avenues and will help an individual to maximize return on investment while reducing their risk.
What are the different types of portfolio management?
Portfolio management is classified into four categories: Active, Passive, Discretionary, and Non-Discretionary portfolio management.
What are the modes through which investment can be made in PMS?
Apart from cash, the investor can hand over an existing portfolio to a portfolio manager that could be revised to suit their profile. However, it is the portfolio manager’s choice to sell off the existing securities to make fresh investments.
What are the benefits of portfolio management services?
Below mentioned is a list of advantages of portfolio management services:
  • Continuous monitoring of portfolio
  • Risk control
  • Transparency
  • Capital appreciation
  • Maximizing returns on investment while minimizing the risk
  • Allocating resources optimally.
Who should invest in portfolio management services?
Portfolio management services are ideal for investors who are:
  • Investors who want to invest in different types of investment avenues such as equity, bonds, stocks etc.
  • Investors who are new in the game and have little knowledge about investment options and market trends
  • People who want a personalized investment solution
  • Investors who desire to invest in investment avenues that provide long-term wealth appreciation.
Are there risks involved in investing in portfolio management services?
Yes, all types of investment involve a certain level of risk, including the possibility of erosion of the principal amount invested, which varies depending on the investment avenue selected.
Who offers portfolio management services in India?
Portfolio management services are offered by entities that have been registered with SEBI (Securities and Exchange Board of India). Portfolio management services operated under very strict norms laid by SEBI.
What is the minimum corpus requirement for investment?
Minimum corpus required for investment purposes is Rs. 25 Lakh.
Do portfolio management services offer guaranteed returns?
Investment and securities are subject to market performance and other risks, so there is no guarantee that the objectives of strategies made under the portfolio management services shall be achieved. Under portfolio management services, investors are not offered guaranteed returns. Returns are solely dependent on the investment avenue’s performance in the market.
What is the difference between discretionary and non-discretionary portfolio management?
In discretionary portfolio management, the portfolio manager is delegated with authority to invest according to their discretion on behalf of the investor. The manager will make investment decisions based on the investor’s risk tolerance and financial goals. On the other hand, under non-discretionary portfolio management, the manager only provides advice related to investment choices.